Israel is a country that has enjoyed strong economic growth over the last decades and there are many success stories to be told. Some examples that immediately come to mind are its commendable policies for promoting an innovative and vibrant high-tech sector, as well as its scientific expertise in managing water resources and its experience in handling mass immigration. Since the late-1980s early 1990s, the context of macroeconomic stability has provided the right conditions for stable growth and building confidence. All these are valuable experiences to other countries, including many OECD members. In addition, let us not forget that the modern Israel was built with few natural resources and hostile environment.

From left to right: Benyamin Ben-Eliezer, Minister for Industry, Trade and Labour, Israel; Angel Gurría OECD Secretary-General and Yuval Steinitz, Minister of Finance

However, it has to be acknowledged that the fruits of this growth have not been equally shared amongst the country’s rapidly growing population. Consider the incidence in the population of the people with disposable income less than half the median, which is the standard indicator of poverty used at the OECD. Based on this measure, the overall poverty rate is high.

At 20% it is higher than in any OECD country and it is strongly concentrated. About half of all Arabs are in poverty and 60% of the Haredim. With almost half of all children starting primary school belonging to these groups, there is an urgent need to tackle the causes of this poverty.

So, the Israeli society still faces deep divides and inequalities – both economically and socially. The roots of poverty lie in low labour-market participation of Arabs, in particular Arab women, and of Haredim men. For both these population groups there is a comparatively high share of low-wage workers. High poverty rates are also attributed to their low levels of education attainment.

Bridging these divides and promoting a more socially inclusive society will be key to Israel’s future economic development and the well-being of its people. How can Israel do better in tackling poverty? Let me provide some key substantive highlights, drawing from our report.

At the outset, our report underscores the need to increase investment in effective public social protection. Countries get the poverty rate they are prepared to pay for. Public social spending in Israel is 16%, some 5 percentage points below the OECD average. If Israel is to cut poverty and reduce inequality, it will have to not only shift the composition of social spending, towards more cost-effective benefits, but also increase its investment in this area.

Effective enforcement of labour laws is another issue. Minimum employment conditions among resident and foreign workers alike can be achieved through more investment in enforcement (e.g. the Labour Inspectorate), and increasing sanctions for employers who break the law.

Also, we believe that there is a need to fight discriminatory practices more effectively. Specific recommendations in this regard contained in the report are as follows:

Enforce quotas for minority groups in the public sector (these are currently 10% of employment and 30% of new recruits, but are often ignored);

In addition, the government could use its leverage as a contractor to encourage equal opportunity practices in the private sector;

Stronger powers could be granted to the new Equal Employment Opportunities Commission to assess the staffing policies and outcomes of large and medium-sized employers.

Welfare-to-work programmes in Israel still have some way to go. Particularly the “Lights to Employment” and the associated “Earned Income Tax Credit (EITC)” could be made more effective. Plans to extend these programmes across the country are welcome, but there are serious flaws in their design. Better incentives to place clients in regular jobs are needed, and employment supports should be tailored more closely to clients’ needs. EITC payment rates should be increased, helping those working families with children who are struggling to make ends meet.

Lastly, the need to stop exploitation of temporary foreign workers is a challenge. Recruitment agencies continue to charge high and illegal fees, and some employers violate minimum working conditions. Quotas for temporary foreign workers need to be set in a transparent manner; employers should be required to advertise jobs in Israel first, and hires from outside Israel must be justifiable with reference to the skills of the individual in question.

Israel has been embarked on a continuous effort to reform its economy. Over two decades it has succeeded in opening to global competition. The pattern of economic growth has strengthened, as a result, becoming significantly more stable. I very much hope that, by providing a framework to address poverty and inequality, the OECD’s reflections will help Israel write a new chapter. It is time to complement past achievements with new gains: the gains of inclusiveness, which will make the Israeli economy stronger and fairer. It is a priority to put Israel on track to meet the future challenges of globalisation.

This Review and our Economic Survey of Israel mark two first milestones for OECD analysis of Israel’s economic policies and our cooperation with Israel. Let me express my warmest thanks to you, Minister Steinitz, and your colleague Ministers for the opportunity to discuss the OECD’s work and for the support in the peer-review process that has lead to this report.

We look forward to a fruitful discussion. I hope that I will have the honour to meet you again tomorrow at the public event to be in a position to continue our exchange of views.